Mortgage 101: Own and live in a house, earn income on it and possibly have someone help pay for upgrades

PVPost Sponsor - September 8, 2015 10:00 am

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By Mike Miles

Mike Miles
Mike Miles

Homebuyers are savvier today than they were in the past. This is a great sign as I believe it’s extremely important for homeowners and buyers to be as educated as possible regarding home loan financing. Hence part of the purpose of this column, Mortgage 101.

I spend much more time answering questions today that people did not ask in the past and I love it. It means people are engaged and possibly paying more attention to just how important it is to get into the right property (or stay in the right property) with the right loan option. Here’s a question: Have you ever thought about owning a home as a primary residence but having earned income on it  as well? What if you added the ability to finance upgrades and renovations with someone else covering that expense? Sounds a bit out there, doesn’t it?

The idea is this: You can buy a two-unit (or up to a four-unit) property to live in one unit and rent out the other(s). This can be done using normal conventional/conforming or government sponsored (FHA or VA) financing. Even though you are buying a multi-unit home there is only one loan used to secure the financing. Rents are still increasing and homes in Prairie Village, Fairway, Roeland Park, Waldo, Brookside, etc. can fetch an average of $400 to $600 per bedroom per month. For example, if you bought a two-unit home (i.e. a duplex) for a price of $200,000 and applied a 5 percent down payment you would finance $190,000. Assuming the following for illustrative purposes only:

4.25 percent rate
30-year term
Monthly property taxes of $225
Monthly home insurance of $100
Monthly mortgage insurance of $98
Total estimated payment: $1,350/month

If this property had three bedrooms per unit and you rented one side out you could earn anywhere from $1,200 to $1,800 a month in rent received which would cover most or all of your monthly mortgage expense. The only obvious drawbacks to this is, of course, there is a chance a tenant could bail and it’s also a personal preference to live in a home where you have neighbors on the other side of the wall versus a lot next door. If you are comfortable with those aspects this is a great option to build equity while minimizing/eliminating your housing expense.

Let’s add a bonus thought: What if you did the Homestyle Renovation loan on this property to increase its quality and value? Remember I discussed that program a while back where you can do a loan (purchase or refinance) to finance all your upgrades/renovations even if you don’t have the actual available equity at present time. Not only do you have rents received offsetting your monthly expense but also to help pay for your improvements.

Someone paying your mortgage and possibly even your improvements for you while you get the equity, value and tax benefits – not a bad idea. To explore this idea more or to get help in creating a mortgage plan for you call Mike Miles at 913.745.7000, email at [email protected].

This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268

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